) released its Q1 2011 earnings on April 25
. We previously discussed our concerns over rising input costs, but
the magnitude of the dent to EBITDA margins was a bit higher than
we had expected. Kimberly-Clark's competitors Procter & Gamble
) and Colgate-Palmolive (
) will release earnings on April 28.
Given the latest earnings release, we have revised
our price estimate for Kimberly-Clark stock to
, about 5-10% above market price.
First Quarter Highlights
Kimberly-Clark's grew first quarter sales by 4% over the same
period in 2010, to $5 billion. While volume contributed around 2%
to the growth, another 2% still came from favorable foreign
One concern was the corresponding 18% drop in operating income
from $644 million in Q1 2010 to $544 million in Q1 2011. While
Kimberly-Clark benefited from sales growth and dedicated cost
savings of $60 million, these were far outpaced by inflation in key
input costs of about $195 million over 2010 levels. Production
curtailment to check inventory levels adversely affected operating
income by an additional $25 million.
What to Expect for the Rest of 2011?
In March, Kimberly-Clark proposed price increases in North
America in the range of 3%- 7% for baby care products and around 7%
for consumer tissues to be implemented in the second and third
quarters of the current fiscal year. Given the Q1 results, the
price increases are almost a certainty now. In fact, given the
magnitude of cost-inflation we do not rule out the possibility of
Kimberly-Clark implementing price hikes outside North America as
well. While we don't rule out higher costs outside North America,
we think price-conscious consumers in emerging markets can still
expect stable prices, at least over the next two quarters.
Given Kimberly-Clark's vulnerability to pulp and paper, which
are inputs for most of its products, it might also be wise for the
company to explore further outsourcing options, particularly in
geographies outside the U.S. This would keep a check on raw
material costs and also reduce overheads associated with management
and administrative expenses, which currently strain
Kimberly-Clark's operating margins.
See our complete analysis of Kimberly-Clark